Ethiopian Development Research Institute and International Food Policy Research Institute (IFPRI/EDRI), Tenth International Conference on Ethiopian Economy, July 19-21, 2012. EEA Conference Hall

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
ECONOMY WIDE IMPLICATIONS OF LARGE
SCALE LAND INVESTMENTS IN ETHIOPIA:
A Computable General Equilibrium (CGE) Analysis
Seneshaw Tamru
IFPRI ESSP-II
Ethiopian Economic Association
Conference
July 19-21, 2012
Addis Ababa
1

2. Objectives:
• To analyze economy wide impacts of large-scale
agro-investments in Ethiopia
• Look at their impacts on poverty and household
welfare

3. Introduction
• Considerable economic growth over the last seven
years (11%)
– Industry 10%, Service 14.6%, Agriculture 8.4%.
– The GTP envisages this growth to continue at the
minimum.
• Food Security nevertheless remains a key challenge.
• Ethiopia is Africa’s biggest aid recipient, and
one of Africa’s most food-insecure nations.
3

4. Introduction
• Heavy dependence on rain dependent 1,800
White Wheat
agriculture by small scale peasant farmers.
1,600 Maize
• Challenges of raising agricultural White Teff
1,400
productivity White Sorghum
Birr / Quintal
1,200
• Food prices rose above 2008 levels
resulting food insecurity among poor 1,000
people.
800
• Increasing agriculture production through
extensive cultivation hence is considered 600
central for the country’s food security
problems. 400
200
• Large-scale agricultural investments and
land deals have recently received
0
considerable attention by the government. Feb-…
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5. Status and Size of Licensed Large Scale Land Investments (Domestic + Foreign)
Land size Capital Job Creation (Expected)
Status (Ha) ('000 birr) Permanent Temporary
Operational 1,352,111 3,476,839 20,561 127,114
% of Foreign 40.8 63.9 41.9 27.7
Implemented 1,723,166 43,059,123 49,304 260,854
% of Foreign 71.6 44.5 66.1 19.2
Pre-
Implemented 8,725,613 42,597,619 195,615 864,942
% of Foreign 44.3 83 66.1 38.1
Source: EIA
• Huge potential for increased production, capital inflow,
and job creation
5

6. Minimum and Maximum Rural land lease prices and duration by Region
Duration of lease
Region Birr/ hectare/year (Years)
Tigray 30-40 50 (maximum)*
Oromiya 70-135 20-45
Amhara 111-498 5-25
Benishangul* 15-25 50 (maximum)
Gambella* 20-30 50 (maximum)
SNNP 38-117 25-45
Somali 12-45 -
Source: EIA, Factor Cost, *Rahmato (2011)
• Different types of
Livestock Farming given shorter period (5-35); incentives to further
Rain-fed , and mixed agriculture medium (30- attract investment:
35); – discount on initial
while Irrigated agriculture longer period (40- lease prices,
45); – grace period of
Perennial crops longer (35-45) as compared to payment,
Seasonal crops (30-40) – provision of land for
free, etc. 6

7. Table 1: Licensed Land Size per Activity (Domestic and Foreign)
Area (Ha)
Type of agricultural activity Operational Implemented Pre- Total
Implementation
All activities 1,352,111 1,723,166 8,725,613 10,884,952
1. Cash crops 54,300 74,455 879,440 1,008,195
2. Cereals 77,424 135,101 922,540 1,135,065
3. Cotton 23,158 90,635 457,543 571,337
4. Bio-fuel plants 90,000 210,000 539,050 839,050
5. Sugar 47,000 50,000 173,750 270,750
6. Other crops (rice, etc) 65,195 67,806 295,109 428,110
Total of the six sub-sectors 357,078 627,997 3,267,431 4,252,506
% (of all activities) 26.4 36.4 37.5 36.7
Sources, Own calculation based on data from EIA, Regional Investment Offices, EBDD
7

8. Caveats Cash crop
1,000,000
Cereals 922,540
• The study doesn’t include 900,000
Cotton
investments at pre-
implementation stage (which 800,000 Bio-fuel
is more than 74%) i.e., 8.7 700,000
Sugar
million hectares Other crops
600,000 539,050
• The implementation + 500,000
Area (Ha)
Operational account for about 400,000
26% 295,109
– Looked at large-scale land 300,000
210,000
investments on the six agro-sub 200,000
sectors on Implemented + 90,000 135,101
operational (i.e., about 32%). 100,000
77,424 65,195
67,806
0
• Hence, the results could be
very well understated 8

9. Opportunities and Risks
Expected Benefits Risks
Capital and technology inflow Deforestation
Employment opportunity to local people Loss of land use right for Peasant Farmers
Overall increase in income especially to
local people Food outflow from food insecure areas
Rural infrastructure (i.e., health stations,
schools, roads, electrcity etc) Increasing inequality & social unrest
Better (Increased) food supply and food
security Rent-seeking and corruption
• Given the benefits, many researchers (Rahemato, 2011) and
International activists (e.g., Okland Institute, Green etc.) mainly link
the risks with:
• displacement of the local people and subsequent effect of
• denying them access to water, grazing, and hunting area 9

10. DATA , MODEL, & SIMULATIONS
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11. Data and Methodology
Data:
– Secondary data from EIA & Regional Inv Authorities,
MOA, EBDD, Journals, books, and
– the updated version of the EDRI Ethiopia 2009/10
SAM
• The SAM is disaggregated into:
– 118 activities (with 77 agri. activities by AEZ’s, 26 industry, 14
service),
– 65 commodities,
– 17 factors (by AEZ’s except capital), and
– 13 institutions including 12 households.
– The SAM also has accounts for various taxes, saving-investment,
and the Rest of the World. 11

12. The Model: Dynamics
• The recursive dynamic version of the standard IFPRI CGE
model (Dorosh, Robinson and Ahmed, 2010) is used for
this study
• The model includes three macroeconomic balances:
o Government balance:
• Flexible gov’t savings, and fixed direct tax rates ;
o External (current account) balance:
• Flexible exchange rate with fixed foreign savings ;
o Savings-Investment balance:
• Savings driven investment -fixed marginal propensities to save for all non-
government institutions 12

13. Factor market closures
• Skilled labor and Capital are assumed to be fully employed
and activity-specific.
• Semi-skilled and Un-skilled labor are assumed to be
unemployed and mobile across sectors.
• Total land supply of each type is exogenous; for each land
type, land is fully employed and mobile across sectors.
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14. The Simulations
• Three Simulations:
– GTPL-
• which is the lower case scenario of the Growth and Transformation
Plan (2009-14) as is found in Dorosh et.al (2011)
– LAND-INV-
• The GTPL simulation PLUS land area expansion for the six
selected sub-sectors
– Foreign Capital inflows are added to the calibration in the
form of increased FOREIGN SAVINGS
– LAND-NEGATIVE-
• The LAND-INV simulation PLUS negative shock to existing
activities (i.e., Displacement effect)
– Assumed that 25% of land area given is from local peoples’ crop land
– Reduced land area of the local people
14

15. RESULTS

16. Changes in Macro Variables
INITIAL Annual Growth Rate
Variables (2009/10) in LAND-
Billions Birr GTPL LAND-INV NEGATIVE
Private Consumption 340.00 10.55 10.70 10.42
Absorption 460.91 11.17 11.39 11.33
Fixed Investment 85.93 13.24 13.77 14.47
Real Ex.Rate 78.03 -14.63 -14.84 -14.26
Exports 52.44 18.45 18.28 18.53
Imports -126.66 14.73 14.98 15.09
GDP at Factor Cost 357.43 11.08 11.21 11.14
GDP Change 0.13 -0.07
Agriculture 176.72 7.47 7.59 7.31
Industry 17.41 21.82 21.78 21.87
Services 163.30 13.27 13.42 13.52
• Large scale land investments on the six agro-sub sectors (i.e.,
about 32% of Implemented + operational investment) will
increase GDP by about 0.7 percent over the next five years
16

17. 12.5% Change in Household Income
• Positive change in
12.0% RURAL income of
households under
11.5% LAND-INV
• Considerable decline
11.0%
in rural and urban
income under
10.5%
NEGATIVE Scenario
10.0% • Rural and urban poor
seem to benefit from
9.5% large scale land
investments
• Urban poor benefit
GTPL LAND-INV LAND-NEGATIVE while the NPr don’t 17

18. Poverty Level
Poverty Level (Head Count Ration): 2590 Birr/Year
Poverty Level at the End of 2014/15
Initial
Level
(2009/10)
GTPL LAND-INV LAND-NEGATIVE
NATIONAL 30.3 20.5 20.2 20.7
RURAL 30.7 20.6 20.3 20.8
URBAN 23.9 18.7 18.5 18.8
• Poverty level significantly declines at the end of 2014/15
under all the simulations.
• Considerable decline in urban poverty level
18

19. Conclusion
• Large-scale land investments on the
six agro-sub sectors (i.e., about 10%
of total licensed investments) will
increase GDP by about 0.7 percent
over the GTP period;
• Displacement however, decreases the
GDP by about 0.4 percent over the
five year period
• High income to rural households,
especially to the poor
• Has small positive effect on national,
rural and urban poverty levels
19

20. Implications
• Large scale land investments bring considerable positive
effects on the national economy
• However, results also indicate substantial negative effect on
national and household level income in case of
displacement
• Hence, proper care must be taken before leasing out large
scale land investment deals and proper compensation if
there is expropriation
• Follow up the implementation and operations of large scale
investors and check if they live-up to their promise (i.e.,
school, jobs, infrastructure) 20